Thursday, March 10, 2011

Short-sighted energy outlook

When the heck are we going to catch a break? As we speak, the national average for diesel fuel is around $3.90 a gallon. Four-dollar diesel is a reality in a dozen states and for others, may be just around the corner. The timing couldn’t be worse.

For many, a fuel surcharge helps, and the formula for calculating a surcharge involves the U.S. Energy Information Administration’s weekly fuel price averages. But since the averages involve the previous week’s prices, any steep increases week after week may leave some people in the dust to eat the difference.

As we know, the EIA releases a Short-Term Energy Outlook each month containing forecasts for prices of fuel, crude oil and other energy sources. In recent months, the Outlook is not only short-term, but it appears to be short-sighted as well.

It was just this past February that EIA analysts said oil would likely average $91 per barrel for the calendar year 2011 and that diesel fuel would average $3.43.

A lot can happen in 30 days – namely, political unrest in Egypt, Libya and other oil-producing countries. So, on March 8, the EIA amended its predictions, saying oil would average $105 and that diesel fuel would average $3.81 for calendar year 2011.

For those doing the math, that’s an adjustment of $14 in the forecast for a barrel of crude oil and 38 cents for a gallon of on-highway diesel.

What the EIA is saying, indirectly, is that it ain’t gonna get better anytime soon, and if it does, it won’t be by much.

Not to harp on them too much, because we acknowledge that it’s got to be difficult to nail down what the price of energy will do in the future, especially when the market can be volatile at times due to circumstances beyond the norm.

At least with something like the weather, a few rainy days always give way to sunshine, and vice versa. Sure we grumble when a weather forecaster gets it wrong, but most people realize that it sort of comes with the job.

So, what of energy forecasters? For those doing the math, it’s easy to knock the experts for getting a forecast wrong because of the direct link to a business’s bottom line or take-home pay after expenses.

If you’ve received your March/April issue of Land Line, flip to the “Fuel for thought” article and put yourself in their shoes.

One analyst we talked to hit the nail on the head when he said that forecasting prices is no more science than witchcraft is mathematics.

It’s a tough job, but somebody’s got to do it. It’s just unfortunate that so many people rely on the analysis and forecasts to help them make business and personal decisions.

There are big issues at stake for everyone in this scenario. As the economy attempts to come out from under its rock, a lot of eyes are on the analysts, the media and the lawmakers to give us some good news.

Unfortunately, the news from the EIA each week and each month seems to fall short of what we want or need to hear.

If you’ve figured out a way to survive or even thrive in volatile conditions, more power to ya.